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9 Apr 2003 : Column 297—continued
Lynne Jones (Birmingham, Selly Oak): My hon. Friend has mentioned investment. Is there not a case for additional borrowing for investment in infrastructure, especially housing and transport infrastructure, to help get the economy moving? Is my hon. Friend disappointed that the Chancellor did not do more in that direction, and also omitted to make capital available in lieu of private finance initiative credits in order to speed capital expenditure?
Mr. McFall: I agree that it is important for us to stick to our public spending targets, but, as I have said, the international background is fragile. In the last Budget we committed ourselves to an extra £61 billion of public expenditure. If we can spend all that, and spend it wisely, we will do a service. I think the civil service has yet to learn how to spend it: I believe that the undershoot this year is about £2 billion. I want the measures on public services to be implemented, but they must be realistic given the background.
In the last 11 months of the financial year, total central Government receipts were 1.5 per cent. higher than in the corresponding months last year. That is less than the 2.2 per cent. increase implied in the pre-Budget report, and well below the 4.2 per cent. anticipated in the April 2002 Budget. In the context of the medium-term financial forecasts, we are not meeting the targets that we have set ourselves in a number of areas, which is worrying. Corporation tax forecasts have been cut on three consecutive occasions, but the Treasury is confident that its forecasts are correct. I hope that in this instance they are.
Martin Weale of the National Institute of Economic and Social Research has said:
- "My worry is not about deficits in the short term. The problems arise in two or three years' time".
The Chancellor mentioned productivity. We are still disappointed about that. In the next few months, my Committee will look at productivity. Every year since 1996, productivity has increased by 1.25 per cent., compared with the historical average of 2.25 per cent. The latest Bank of England inflation report states:
- "The growth of labour productivity per person has been below its long-run average".
- "Raising productivity remains a key challenge".
Lembit Öpik: The hon. Gentleman mentioned tuition fees and, by implication, top-up fees. Given that, as we know, education makes a big difference to productivity, and given that the Welsh Liberal Democrats—should they get back in government in Wales—will promise to try to abolish tuition fees and not to introduce top-up fees, what advice would the hon. Gentleman give to his Labour colleagues in the Welsh Assembly? Would he advise them to seek a partnership with the Liberal Democrats in order to find that solution?
Mr. McFall: If I spoke to my Labour colleagues in Wales, they would tell me to take with a pinch of salt anything that the Liberal Democrats in Wales say about that. However, we are at one on productivity. My intervention on the leader of the Liberal Democrats was for the sake of honesty and clarity, which are important in terms of economic issues.
Rev. Martin Smyth (Belfast, South): It is argued that education improves productivity, but is it not a fact that productivity in India and China is even better than ours in some respects, despite our level of education?
Mr. McFall: Yes, but I accept the basic point that education and skills are extremely important. One reason given for the disappointing productivity results is that an extra 1.5 million people have been employed in this country since 1997. Generally speaking, such people have less skills and no work ethic, so it is a matter of training them. Raising productivity is a long-term objective, not a short-term one.
Mr. John Redwood (Wokingham): Has the hon. Gentleman noticed the terrible trend of productivity in the public services? We have put 25 per cent. more real
resources into the health service, and got nothing more out. Is not the core of the problem the fact that too much is going into public services without getting the benefits?
Mr. McFall: I cannot accept what the right hon. Gentleman says on face value, without looking into the figures; however, the biggest growth has occurred in the public services. In terms of investment in the past year in the general international environment, where the economy is in decline, jobs in the public services have been very important. I agree with the right hon. Gentleman that there are reasons for concern in the public services, wage costs being an example. Last year, wage costs in the public services were 5 per cent., whereas in the private sector they were 3.5 per cent. So there are issues that we need to address, and I think that we can have an intelligent debate on them across the divide.
Mr. John Bercow (Buckingham): It has become clear in recent minutes that the stance of the leader of the Liberal Democrats is that, on receiving a bill, he will in each case simply say that he disagrees with the interpretation of it. On the subject of the euro, and given the Government's clear, if mistaken, commitment in principle to joining the single currency, is the position of the hon. Gentleman that this country should do so at exchange rate mechanism mid-rates?
Mr. McFall: The hon. Gentleman anticipates my speech—I shall come to that point in due time. In any event, he is too disparaging of the leader of the Liberal Democrats. The right hon. Member for Ross, Skye and Inverness, West (Mr. Kennedy) and I have been friends for many years, and I respect his integrity. His politics are wonky, but he is a good guy.
The Chancellor has come up with productivity-related initiatives every year since 1997. He has focused on competition, capital gains, tax credits for research and development, raising corporation tax and dividend payments, and on skills training. In addition, new enterprise legislation will be enacted in June. However, we still have a long way to go on productivity, and I give the Chancellor and the Treasury notice that my Committee will be looking at this issue.
The National Institute of Economic and Social Research has suggested that we try something new by joining the euro. It suggests that removing the exchange rate and interest rate volatility through the eurozone could, in the long run, raise UK capital stock by 10 per cent., adding 4 per cent. to the gross domestic product. In addition, trade competition would help productivity.
That leads me to the wider aspect of the euro. Throughout the Chancellor's speech, references were made to labour market flexibility, convergence and other related issues. The decision that the Government must take before the first week in June will be extremely important. During the past three months, my Committee has taken evidence on the UK and the euro; in fact, we have had two evidence sessions every week since the beginning of January. I think that ours is the only body in the country that is making such a fundamental examination of the UK and the euro. To date, the debate in the country has been superficial, irrelevant to people's lives and largely arcane. Ask any member of the public—or even of the Government—to
name the five tests, and one would struggle to get the answer; in fact, the question would probably be met with a blank look.The Chancellor says that the economic case must be "clear and unambiguous", but can that be the case? During our Committee hearing, I asked the Chancellor whether he had ever met an economist who thought that any such case was clear and unambiguous, but he declined to answer. In my view, a clear and unambiguous case cannot be made. People will not be convinced by the Chancellor or his advisers' saying that the economic tests have been met, so we are going in. All that can be made in respect of the economic tests is an economic judgment, but the real judgment is political.
I applaud the Chancellor for the thoroughness with which he has approached this economic analysis. The history of sterling through the 20th century, as far back as 1924, when we re-joined the gold standard, shows that there was no such economic analysis. The history books show that when Winston Churchill was sitting at the table in No. 10 Downing street with Montagu Norman, the then Governor of the Bank of England, he was offered a cursory appreciation of what was happening. He then turned to Montague Norman and said, "Well, will we go in, Montagu?" Montagu replied "Yes". We were back in the gold standard, and disaster followed as a result. So we must have a thorough economic analysis.
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